Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

CPI vs Rate Cuts: The Fed’s Mission Impossible

  by    0   2

With a hot CPI report casting a shadow of doubt on the likelihood of a June interest rate cut, all eyes are on the Fed. But they’ve caught themselves in a “damned if they do, damned if they don’t” moment for the economy — and the news for gold is good regardless. 

With inflation running at 3.5%, it’s no surprise that gold just hit another all-time high — the dollar’s inevitable decline in purchasing power makes gold’s rise equally inevitable. The Fed wants to lower this number, and they know it won’t happen in a lower interest-rate environment. And while Peter Schiff has warned repeatedly in recent months that inflation is still red-hot, the mainstream finance media is expressing predictable surprise that inflation still isn’t under control.

The Fed also needs lower rates to reduce the massive burden of interest payments that the US owes on its existing debt, which can’t be financed through taxes in a country running a decades-long budget deficit. That means the only way to pay the interest is with more borrowed money. It doesn’t take a Ph.D. in economics to see that’s unsustainable, and even Jerome Powell has expressed concern (without addressing the role of his monetary policy in the problem).

The real estate market is desperate for a rate cut as well, with record numbers of vacant office buildings causing a ticking economic time bomb in American cities. Whether they remain offices or become apartments or something else entirely, it’s an expensive undertaking even under the best-case scenario to rezone, redevelop, and fill these buildings with actual human renters. But with high-interest rates, high prices, and a wall of loans due to mature as the post-covid work-from-home trend settles in as a new normal, it’s a bad time to have money tied up in CRE.

A lower-interest-rate environment doesn’t solve any of these problems sustainably. At best, it delays them or replaces them with a different set of problems instead.

If the Fed does cut rates, it encourages borrowing and spending and drives banks to create more new money in the form of loans. This adds to inflationary pressure and encourages investors to safe havens in the form of commodities like gold that can’t be so easily debased. But even if they don’t cut because inflation keeps sticking as even mainstream economists now fear it might, the price of gold goes up along with almost everything else that’s being priced in dollars.

Automated, algorithmically-traded sells can contribute to drops in gold against USD in response to economic data like (cooked) jobs reports, or new inflation numbers. But these drops are being quickly bought up by investors who see the writing on the wall. They see these dips accurately as buying opportunities, as discussed on Peter Schiff’s recent podcast episode, Any News Is Good News for Gold:

“As soon as this stronger-than-expected number came out, just like Pavlov’s dog, these programs sold gold, so gold initially went down. But it didn’t stay down. Because the real money, the real buyers came in, and bought what the programs were selling, and then gold just spiked, because this is a real move. The real gold buyers don’t care about these jobs reports…they probably realize that they’re BS.” 

That was in response to employment data that came out in March, which the government won’t tell you show “strong” jobs numbers only because struggling Americans are being forced to take on multiple income streams to feed themselves and their families. In the case of CPI, a higher number means the dollar is worth less, and a lower number means a higher likelihood of rate cuts — that’s a double-edged sword and mission impossible for the Fed, but a win-win for gold.

Whether or not inflation keeps rising and the Fed only cuts rates once, twice, or not at all in 2024, all signal economic uncertainty. Cuts also won’t solve the economic trouble brewing in China, or continuing geopolitical tensions in Ukraine and the Middle East, which the US is determined to continue meddling in. The common denominator: gold’s attractiveness remains, and its price will continue to rise.

Download SchiffGold's 401k IRA Rollover Free Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

The Educational Cost of Government Meddling

The cost of higher education has skyrocketed. And we have the government to blame.

READ MORE →

The Fed vs. The Treasury: All Roads Lead to Inflation

In the fight against inflation, is it the Fed or the Treasury that calls the shots? The answer is, it’s both. The Fed raises interest rates to make loans less attractive and bring inflation down, but The Treasury has its own set of magic tricks to artificially “stimulate” or “tighten” the economy as well. One of […]

READ MORE →

AI’s Disruptive Effect on Traditional Assets

Artificial Intelligence has already had an incredibly disruptive effect on many industries. It has allowed inexperienced workers the ability to increase their productivity and outpace older workers with less tech-savvy. It has begun to help some companies make efficient decisions that they would have been blinded to if they had only considered their own industry conventions. AI is different from many other […]

READ MORE →

The Copper Bull: Speculation vs. Fundamentals

Copper has gone mad: Liquidated shorts from a flood of speculators, an AI bubble, a supply crisis, and a renewable energy craze have all combined with high global inflation to recently send it to historic all-time highs. While I believe there will be major corrections as some of these factors come back down to earth, the most important one — […]

READ MORE →

How the Regulatory State Cripples Small-Business

Politicians parrot on about small businesses being the backbone of the economy, only to pass the regulations that stifle them. In 2024, several federal agencies instituted new regulations on small businesses. These agencies included the Financial Crimes Enforcement Network, the IRS, and the Consumer Financial Protection Bureau. The new restrictions add to an exponentially increasing mountain of […]

READ MORE →

Comments are closed.

Call Now